Fitch warns of GDP decline amid US tariff expansion
US President Donald Trump arrives to speak on his policy to end tax on tips in Las Vegas, Nevada, on Jan. 25, 2025. (AFP Photo)
The United States has intensified its protectionist trade measures, implementing a sweeping set of tariffs against China, Mexico, and Canada that could reshape North American trade dynamics and further strain U.S.-China relations, according to a new Fitch Ratings analysis.
While the Trump administration granted a 30-day pause on tariffs for Mexico and Canada, the 10% tariff increase on Chinese imports remains on track, with China retaliating by imposing 15% tariffs on select U.S. products.
The economic impact could be substantial. Fitch Ratings projects the tariffs would add $350 billion in import taxes, potentially reducing U.S. gross domestic product (GDP) by 0.4% from current estimates by 2026.
The impact on Mexico and Canada would be more severe, with projected GDP declines of 2.3% and 1.4%, respectively, because of their heavy reliance on U.S. export markets.
Fitch Ratings claims China tariffs likely to rise further
“China is subject to U.S. trade investigations, and we think U.S. tariffs on Chinese imports are likely to rise further this year,” Fitch reported, citing Trump’s characterization of the 10% increase as an “opening salvo,” in his push to reduce U.S. trade deficits.
The trade tensions have introduced significant economic uncertainty, particularly regarding ongoing negotiations with Mexico and Canada.
“It is unclear what will emerge from the U.S.-Mexico and U.S.-Canada negotiations, how far the U.S. is prepared to revise its proposals, and how similar efforts at de-escalation with China may proceed,” Fitch noted.
The ripple effects could extend to monetary policy. Despite the negative impact on GDP, Fitch suggests the resulting boost to U.S. consumer prices could slow Federal Reserve interest rate cuts, further complicating the economic outlook.
The trade policy shift represents “a clear and significant risk” to Fitch’s macroeconomic forecasts for all three countries, highlighting the growing economic challenges facing North American trade relations.
